Where to buy an investment property this spring selling season
Melbourne property prices are tipped to rebound, but these experts think there’s two better bets for investors.
Spring selling season is here and the housing market is looking hot. So, where can investors get the best bang for their buck, and which markets are most appealing to the risk-takers?
Property experts say Melbourne is finally in from the cold after languishing for the past few years and is poised for a rebound, but for investors there’s two other markets that are a better bet.
The attractiveness for Melbourne, Australia’s second-fastest growing city, is that it’s entering a period of price catch-up.
“Melbourne looks attractive now because it’s underperformed over the last few years,” veteran property researcher Cameron Kusher of Kusher Consulting.
“Sydney, Brisbane, Adelaide and Perth are all more expensive than Melbourne. We have seen fewer investors in Melbourne in recent years but there’s a lot of talk at the moment that investors are coming back, particularly those from interstate.”
Melbourne prices are rebounding after having barely moved since the post-Covid mini house price boom. However, rents have pushed much higher, meaning the yield for investors has also improved.
Melbourne’s median home price has lifted 1.4 per cent over the past year to sit at just over $803,000, compared to $1.2m in Sydney (up 2.1 per cent), and $950,000 in Brisbane, according to Cotality data. Rents in Melbourne, meanwhile, are up about 3.5 per cent over the past 12 months, and 3.9 per cent in Sydney, research house SQM Research estimates.
But the issues holding Melbourne property prices back still remain, meaning it is potentially a riskier choice for investors even if the price-point appeals.
The Victorian government, drowning in debt, is extracting what it can from property investors through any tax it can think of. There are now more than 10, including a short-stay levy, a windfall gains tax and a vacant land tax. Some buyers are hit with a congestion levy, an economic entitlement duty and a growth areas infrastructure contribution.
Victoria’s property-related taxes are higher than any other state. Buyers paying $1m for a home will be hit with the highest stamp duty in the country, with the state government collecting $55,000 for homes sold at this price. This compares to buyers in Darwin, Sydney and Adelaide who pay no stamp duty at all on $1m homes.
Victoria is also the third-highest city for land taxes.
Victoria punishes property investors more than any other state, but this is a move that aids first-home buyers through lower home prices. Melbourne also has a lot of stock on the market, which could act to keep a lid on prices.
“There just isn’t the same sense of urgency from buyers that we’re seeing in places like Brisbane, Adelaide and Perth,” Mr Kusher said.
Adding to the demand across these capital cities, which have been running hot for a few years, are new incentives for first-home buyers.
The federal government’s Home Guarantee Scheme is expanding from October 1 with property price caps and income thresholds to rise.
It means eligible buyers will be able to purchase with a deposit of just 5 per cent, without needing to pay thousands more to pay for lenders mortgage insurance.
“The Australian property market is benefiting from the household sector having more money to play with,” Cotality head of research Eliza Owen said.
“We’ve had three reductions in the cash rate, gradually rising consumer sentiment and real income growth across households.”
Ms Owen thinks there is the potential for property prices to recover in Melbourne but is wary of the risks for investors.
Mr Kusher and Ms Owen are far more bullish of two other markets. They think Perth and Southeast Queensland are the better picks.
“If you want a sure thing, it seems likely Western Australia and Queensland will continue to show momentum in their growth rate, and I don’t see any reason for that to change any time soon,” Ms Owen said.
This sentiment was echoed by Mr Kusher.
“As crazy as it sounds, I still think Perth is the market that probably has the most upside,” he said.
Cotality data shows Perth’s median home price has jumped 6.6 per cent to just under $842,000 over the past 12 months, while Brisbane’s median home price climbed 7.9 per cent to $950,000.
Like Perth and Brisbane, Adelaide has been an outperformer in recent years. Its median home price jumped 6.5 per cent over the past year to just over $851,000. But its prospects have dampened somewhat, Ms Owen warned.
While prices in South Australia are still set to grow, the market may be tempered by the migration outlook. Internal migration for the state has turned negative in recent quarters, meaning more people are leaving the state than moving into it, she said.
For the risk-takers, Darwin could be worth a look. It’s offering the best yield at the moment, at 6.5 per cent, and median home prices are up 10.2 per cent this year to $553,131.
“It’s a bit of a risky play though. It’s very reliant on military and gas and some of these things, so it’s not a very diversified economy,” Mr Kusher said.
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